Ecobank Capital see growing opportunities in the mining sector.
MC: Ecobank Capital is the investment banking arm of the Ecobank Capital Group, operating in 35 countries in West, Central, Eastern and Southern Africa. Our products include mergers and acquisitions, project finance, structured trade and commodity finance, equity and debt capital markets, and asset management. We have positioned ourselves as trusted advisors by providing innovative and value creating solutions to our clients. We leverage our balance sheet and our extensive presence on the ground to establish Ecobank Capital as the leading counterparty across middle Africa.
Given Ghana’s long history of mining, what role do you foresee it playing in regional mining development?
MC: In terms of Ghana becoming a preferred investment destination, we are very confident that after the election decision we will have more investor attraction, not just in the mining sector but across industries, especially in oil and gas. Once we develop our gas pipelines, both onshore and offshore, Ghana is going to be a major player. Looking at what is going on across the continent, even though Ghana is a small country, companies are beginning to look at it as a hub from where they can set up their offices and do prospecting across the region. Indications from the Ghana Investment Promotion Council are already showing that investments are going up and people are making more inquiries about the country.
What role can Ecobank Capital play in fostering this development?
MC: Mining investments are largely dependent on how commodity prices behave, but having said that, Ecobank Capital has had a lot of recent inquires about mines trying to expand. We have just done a $50 million transaction in Ghana two months ago. We have been approached by other mining firms with similar requests. This shows that investors are preparing the grounds for a possible upside in the future. In the past, Ecobank Capital has not played dominantly in the sector in terms of capital expenditure, though we have supported the sector with foreign exchange transactions and working capital-related requests. Largely, most of the mining firms with parent companies from outside can source funds internationally more competitively. It is only recently that, because of local content considerations, investors are talking to the local banks in Ghana to see what they can do to achieve a more blended mix of financing.
Looking at the level and type of investments that these institutions are looking for, syndication is the way to go going forward. We have tended not to have financing in this country for more than seven years, however these mining projects are long-term investments with tenors ranging between 10 to 15 years and this is a challenge that we have in the sector.
With regard to the regulatory framework for investment, how is Ghana positioned to compete for mining dollars?
MC: The mining sector in Ghana has come of age and we have major players in the market. Neighboring countries are trying to use regimes that we had in the past to attract investors. Ghana’s trump card is really our stability. People are calling for more benefits to communities, which will mean coming up with a regime where there is a tilt point at which some profit goes to government. With the gas industry developing, mines will have direct gas lines to their operations, which will reduce costs and make us more competitive. This is what will drive investors still to Ghana, even though neighboring countries will come up with legislative and environmental regulations to favor them better.
NAM: What also goes in Ghana’s favor is our infrastructure. Liberia and Sierra Leone have huge mineral resources, however they are coming out of conflicts and do not have good infrastructure in place. In the last couple of years most of the activities in those markets have been mine reconstructions deep in the hinterland. Ghana is ready and is relatively ahead and our deposits are still huge. Beyond gold, other minerals have not really been tapped, such as bauxite.
Bauxite production still faces the challenge of infrastructure, however, given its distance from ports. How can Ecobank Capital play a role in helping to facilitate public private partnerships to improve infrastructure?
MC: For the past two years, the government has been trying to put into place a legislative framework for PPPs. They issued guidelines in 2011 and we are now trying to develop a PPP law, which should be ready by the end of November. Some projects for PPP have been lined up, including railways and harbor expansions. Once it is passed, we will see a lot more coming up. For bauxite and manganese, we have to look at developing our railways. We are ultimately looking at an integrated aluminum industry, which will require a very high level of investment and PPPs will really be the best way forward.
As mining will be a key focus for Ecobank Capital going forward, what is your outlook for the growth of the sector in the medium-term?
NAM: An area that has showed some prospect for Ecobank Capital is with mining services. Mining service companies are getting into contract services not just in Ghana but also in other markets and Ecobank Capital is seeing a lot of proposals. Deal sizes in this area are $20 million to $50 million. The preference is normally for local funding, except that it happens to be expensive, so we intend to position ourselves to be able to play a lead role in structuring a mix of financing that meets their needs.
MC: Going forward we expect to see more stability in our macroeconomic framework. Our interest rates have not been competitive because of high inflation in the past, which in turn mirrors the cost of funds of financial institutions. By restructuring our current debt stock profile and managing our debt sustainability levels, we expect our yield curve to assume normalcy and inflation to drop to single digit within the short to medium term. When this happens, we would expect interest rates on short-term borrowings to drop which will then make it feasible for corporate institutions to explore the bond market for long-term financing. In the next three years, we should be seeing more fundraising efforts in mobilizing 10-15 year bonds in the mining sector.
Ecobank Capital will be able to play a major role in the expansion of mining services activities across the region. We also expect to see more activity on Regional Stock Exchanges, as new entrants to the sub-regional markets may be required to list as part of entry criteria.
This interview was conducted as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.